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ACC buys high, sells low as Intueri surprises investors with cascade of bad news

Friday 30th September 2016

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Fund managers including those at the Accident Compensation Corp were among sellers of Intueri Education Group shares this week that sent the company to a record low in the wake of a cascade of bad news.

ACC sold about 1.1 million shares at about 6.8 cents apiece on Sept. 27, reducing its core holding to about 3.8 percent from 4.9 percent. ACC fund managers had been buying the stock on their own account at the start of August, paying 29 cents a share and because of the way the ACC tallies its corporate funds with those of its fund managers, its relevant interest fell from more than 5 percent, a substantial holding under the rules.

Asked whether there are any systemic problems with Intueri in the wake of its announcement this week that its Australian schools are at risk of being struck off for failing to comply with standards, interim chief executive Rod Marvin said the company's missteps have been a series of one-offs.

"There is no common factor between the developments that Intueri has faced to its operations in New Zealand and Australia," he told BusinessDesk.

Intueri shares rose 4.2 percent to 12.5 cents on the NZX today, having sunk as low as 4 cents when they resumed trading on Tuesday. They had tumbled from 30 cents on Sept. 21 before being halted. The company was sold by ASX-listed owner Arowana International at $2.35 a share in its May 2014 initial public offering, and they still own a 25 percent stake. 

Apart from two minor trades this year on its own funds, ACC bought the bulk of its Intueri holding in previous years, meaning it could have paid as much as $3.35 a share in September 2014.

"As you observe, we sold the shares at a lower price than we had bought at, so it has been a poor investment," said Nicholas Bagnall, ACC's investment manager. "I don’t want to say too much about the rationale for selling, as we continue to have a shareholding in the company, but the news about Intueri’s Australian subsidiaries facing the possibility of de-registration or other sanctions was unexpected, by both ACC and other investors".

Bagnall says the ACC's own fund has deliberately kept its holding in Intueri below 5 percent, but fund managers who answer to him can trade on their own account provided Bagnall is satisfied there's no conflict with ACC's funds. Paul Robertshawe, Jason Familton and Blair Tallot filed separate SSH notices today. All three were buyers of the shares on Aug. 3 at 29 cents, based on earlier SSH notices.

"We had recognised that investing in Intueri carried a higher than average level of risk, and for this reason we had not approved ACC taking a shareholding of more than 4.99 percent in the company," Bagnall said. "ACC’s portfolio managers nonetheless chose to invest in Intueri because they perceived potential upside that provided an offset to the downside risks."

He said ACC sold the 1.1 million shares this week after the news broke about Intueri’s Australian registered training organisations facing possible de-registration. ACC has retained about three-quarters of its holding, now diminished in value.

Some of Intueri's troubles predate the IPO, which raised about $60 million for the acquisition of Quantum Education Group. The deal was conditionally agreed in February 2014, three months before the company came to market with its IPO. Quantum generated about 20 percent of Intueri’s revenue in 2015, making it the biggest of its New Zealand schools, the company said at the time.

In January this year the shares plunged after Intueri confirmed that the Serious Fraud Office was investigating Quantum. Intueri's account included a $53 million impairment against Quantum, of which $27 million was against goodwill and brand. It also suspended dividends pending Tertiary Education Commission funding reviews of Quantum and the NZ School of Outdoor Studies (a dive school). NZSOS and the Design and Arts College were also impaired.

While the TEC approved an overall 6 percent increase in funding for Intueri in 2016, it restricted enrolments of unfunded students at Quantum, which it estimated at the time would cut $8 million-to-$9 million from revenue. Marvin said the company would consider legal remedies and recourse against the original vendors once Deloitte had completed a review for the TEC.

More unfinished business flowed through from privately owned Intueri to the business in its listed company form. In late 2014 it was charged by Worksafe New Zealand under the Health and Safety in Employment Act over the death of a foreign student enrolled at its dive school in April 2014. The company was required to tweak its prospectus as a result.

Yet none of the events have been as destructive to shareholder value as news of the Australian audits by the Australian Skills Quality Authority (ASQA) that found Online Courses Australia (OCA) and Conwal & Associates weren't compliant with its standards. Intueri has until Oct. 21 to respond before the ASQA makes a decision, with possible outcomes ranging from a directive to correct areas of non-compliance through to the full cancellation of OCA and Conwal's registrations as registered training organisations (RTOs).

Cancellation of the registration for Conwal, which generates some 95 percent of OCA's revenue, "would place serious doubt on OCA Group’s ability to continue to operate, and also significantly impact Intueri’s ability to remain a going concern as it would be unlikely to meet its future banking covenants," Intueri said on Tuesday. OCA accounted for 35 percent of Intueri's $50.1 million of revenue in the six months ended June 30.

Since then the company has secured a letter of support from banker ANZ Bank, which has also signed off on its response to the ASQA. In New Zealand, Intueri says it consulted NZQA and TEC and alerted its bank before deciding to amalgamate six training schools in New Zealand into a single entity, to be known as Intueri Education New Zealand.

The new group doesn't include the company’s NSIA, NZ Institute of Sport, NZ College of Massage and NZ School of Commercial Diving

"This is primarily being done for ease of administration and will move us from six separate PTEs to a single PTE and legal entity," Marvin said. "The project will help us reduce costs, but more importantly, provide benefits associated with a larger scale group."

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